The Explosive Growth of Esports Won’t Stop Soon

By Pawan Naidu

There is a fast-growing community of competitive esports. Professionals and amateurs compete in tournaments where a $100 million prize can be one or lost by a single click of a mouse. A player’s keyboard or controller is just as important as Tom Brady’s glove, Lebron James’ shoes, Roger Federer’s racket or Cristiano Ronaldo’s cleats.

By Pawan Naidu

There is a fast-growing community of competitive esports. Professionals and amateurs compete in tournaments where a $100 million prize can be one or lost by a single click of a mouse. A player’s keyboard or controller is just as important as Tom Brady’s glove, Lebron James’ shoes, Roger Federer’s racket or Cristiano Ronaldo’s cleats.

“Perception is everything,” Alex Lim, Secretary-General of the International e-Sports Federation, and lead advocate for an ambitious bid to have the sport recognized as an Olympic event by 2024, said to the Financial Times. “One generation grew up kicking a ball in the backyard, the next grew up with choices that included games. We live in a digital culture that most people accept is redefining a whole range of things: sport is one of them.”

The new industry has been questioned by broadcasters and sports promoters but still brings in lucrative financial benefits. The global gaming industry, to the glee of its supporters, is expected to exceed $100 billion in annual revenue in 2018, and it continues to grow faster than even the entertainment industry. While the current business model for esports is still unclear, there are many people predicting that its commercial ceiling is about to burst. This will be especially true if mainstream broadcasters realize esports content can be an asset that can lure consumers back to the television and away from smartphones and computers.

Early projections predict that esports revenue will come from three primary sources: the sale of content rights to broadcasters, direct payments from live streaming services (some live tournaments can attract tens of millions of viewers) and advertising revenues initially from the gaming industry that eventually will incorporate a broader range of non-gaming related companies.

Esports is the first big trend in the entertainment market to establish itself in Asia. It largely started in South Korea and China, and unlike other entertainment industries, its audience is mainly located in Asia, rather than the western world.

The demographics of the esports audience, pro-players and viewers are predominantly in teens and people in their early 20s and will be attractive to advertisers and sponsors.

Now several other platforms are vying for the attention of esports fans, from YouTube Gaming and Facebook to Activision Blizzard’s Major League Gaming. Traditional broadcasters like Sky in the U.K. are also actively exploring ways to get into the market to attract a younger audience.

The initial thought was that esports would be a way for publishers to build awareness for their games. While marketing is still a priority, companies like Activision Blizzard and Riot now see tournaments and leagues as sources of revenue as well. Tickets for the 2017 League of Legends finals in Beijing cost $41 to $185, which is comparable to a Major League Baseball game.

We haven’t even begun to talk about merchandising yet. Fans of teams like Cloud9, Fnatic and Immortals can buy branded shirts, mouse pads and even dedicated chairs. Since Activision Blizzard joined the Overwatch League, they split the revenues from media rights, merchandise and sponsorship with its teams.

The best players: Faker, KuroKy and Neo (these are their in-game monikers) can make millions of dollars a year through competitions. But they have a lot of pressure put on them in a relatively short amount of time.

Chris Hopper, head of league operations at Riot Games, the Tencent-owned publisher behind League of Legends, which with more than 100 million monthly players according to the company, says star gamers have been thrust into a limelight for which neither they nor the industry, were fully prepared.

“Five years ago, every one of our players came from obscurity, playing in the [college] dormitory or their apartment. When LeBron [James] stepped on to the NBA court for the first time, he had been on the cover of Sports Illustrated several times and been media trained since he was 10,” Hopper said to the Financial Times.

Esports isn’t without their fair share of controversies though. Esports players have been known to use the non-prescription ADHD drug, Adderall, to boost their performance, which has now been banned in competitive esports. Also, exploiting software glitches not meant to be part of the gameplay have led some viewers concerned about the ethics of the sport. However, others say the ethical problems are not any different from other sports.

“We think esports . . . can have truly global appeal,” Hopper said. “There isn’t anything inherently sociocultural that would make it appeal more in one region than another.”

The massive success of live esports tournaments, which generate millions of viewers to watch certain matches and players, has been a surprise to broadcasters. The esports popularity has coincided with the decline of people watching traditional sports.

The most value for game publishers comes from the people watching online. Almost 400 million people watched last year’s League of Legends world championship, making it the esports version of the FIFA World Cup.

“Esports is the first digital-native sport,” Pete Vlastelica, chief executive of Activision Blizzard’s Major League Gaming, said to the Financial Times.

Publishers and esports tournament operators are hoping to push esports into the mainstream by helping broadcasters capture that elusive audience by selling rights to their leagues. For instance, Riot, League of Legends’ publisher, has a $300 million licensing deal with BAMTech.

In a further sign that the phenomenon is here to stay, Nielsen has created an esports research business that found that 53 percent of esports fans in the U.S., U.K., France and Germany considered competitive gaming a sport and more than two-thirds believe it will soon become mainstream. Newzoo, the games industry researcher, predicts that the global audience for esports will approach 580 million by 2020.

“Broadcasters, traditional sports, advertisers they are all going to have to get used to the idea that these games and these tournaments are not just a niche activity, but the way that a generation that grew up with very different choices [compared with] the previous one think about entertainment,” Lim said. “You have a generation that grew up with games, that now has an income, and is thinking ‘what is a sport?’”

Evidence supports Lim’s optimism and his assertion that esports are an expression of how the entertainment industry is changing.

Ari Segal, former chief operating officer of the Arizona Coyotes, the NHL hockey team, and now president of Immortals, an esports team based in Los Angeles, believes that the online version offers something different for entrepreneurialism.

“There is a real correlation between game participation and esport popularity thriving over time,” Segal told the Financial Times. “At the scale these sports are consumed, I think there are potentially big dollars at stake.”

There are 20 US universities that have made esports official varsity programs. To the surprise of many, Japan agreed to allow visiting esports tournament players to enter their country on visas typically reserved for athletes. The 2022 Asian games, to be hosted in Hangzhou, China, will have esports as a medal event.

Manchester City, Paris St. Germain and Ajax are a part of the more than 20 European football clubs that have created esports teams to participate in international tournaments for the football game Fifa 18. The NBA and NHL are leagues in the U.S. that are planning similar moves, respectively.

However, things might be different in the not so distant future. Gamers could find themselves handpicked by traditional sports teams to compete in tournaments that have nothing to do with football, basketball or ice hockey. The Boston Celtics, for example, could find themselves fielding a top-level Fortnite team.

A Newzoo analysis from earlier this year forecast that the esports economy — including media rights, advertising, sponsorship and ticket sales (but not betting and in-game revenue such as the purchase of virtual weapons upgrades) will be worth $696 million worldwide by the end of this year. By 2020, it predicts that total revenues will more than double to $1.5 billion, driven by a large influx of sponsors from outside the games industry, where Intel, Logitech and Samsung are among the existing backers.

“To some extent you are reaching an audience you wouldn’t otherwise,” John Bonini, general manager of VR, gaming and esports at Intel, a lead sponsor for the Overwatch League, told the Financial Times.

Many early esports sponsors had existing ties to the games industry, including computer manufacturers and peripherals makers such as Razer and Logitech. Now, more traditional brands are starting to join in. Procter & Gamble’s razor brand Gillette sponsored the Electronic Sports League Extreme Masters, alongside Intel, in Poland this year. According to Nielsen, more than 600 esports sponsorship deals have been struck since the beginning of 2016.

The fastest-growing revenue stream, according to the Newzoo analysis, is media rights, which they expect to generate $340 million by 2020, up from $95 million this year, as traditional sports broadcasters such as Sky and ESPN are expected to start bidding against Twitch, Facebook and YouTube.

Reggie Fils-Aimé, the chief operating officer at Nintendo of America says that while the company is a believer in the draw of competitive esports, he remains unconvinced that monetizing the content sold to TV broadcasters and city-based franchises such as Blizzard’s Overwatch League is a realistic plan.

“There needs to be a fully formed business model for [the future value and potential of esports] to come to bear,” Fils-Aimé said to the Financial Times. “There needs to be some sort of affinity for the team . . . Do we think that’s going to work with video games, especially when they are being played through the internet?”

Traditional sports should take note. The Beijing esports crowd, organizers were keen to point out, was about the same size as the one that watched Manchester United beat Ajax in the UEFA Europa Cup in May.

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